Cost Segregation in Houston, TX

The energy capital of the world and home to the nation's largest medical center — Houston delivers blue-chip employment, affordable entry prices, and zero state income tax for maximum cost segregation returns.

Population
7.3M
Median Home
$320K
Rent (3BR)
$1,750
Property Tax
1.60%
Annual Job Growth
85K+
Ranking
#1 Metro Job Growth
Overview

Value Props for Investors

MEDICAL POWERHOUSE
Texas Medical Center: 106K+ Employees

The world's largest medical center employs more people than many entire cities. MD Anderson, Houston Methodist, and Memorial Hermann attract medical professionals from around the globe — creating a permanent, high-quality tenant pool within a 20-minute radius.

ENERGY CAPITAL
Global Energy HQ with Diversified Economy

ExxonMobil, Chevron, Phillips 66, and hundreds of energy companies call Houston home. But the economy has diversified dramatically — tech, healthcare, and aerospace now drive job growth alongside energy, reducing cyclical risk for landlords.

ZERO STATE TAX
No Income Tax = Maximum Cost Seg ROI

Every dollar of federal cost segregation savings goes directly into your pocket — no state tax clawback, no addback, no conformity issues. On a $320K property, that is $27.7K in clean, immediate Year 1 federal savings with zero friction.

Tax Strategy

Cost Segregation & Tax Rules in Houston, TX

Understanding how federal and Texas state tax rules interact is critical to maximizing your cost segregation benefits in Houston.

Cost Seg Overview
State vs. Federal Rules
Tax Landscape
Typical Purchase
$320,000
Building Value
78%
22% land / 78% building
Cost Seg Range
25-38%
of building reclassified
Home Age
26 yrs
Built ~1998
What Gets Reclassified

A cost segregation study identifies building components that can be depreciated over 5, 7, or 15 years instead of the standard 27.5 or 39 years. In Houston, typical reclassification rates are 25-38% of building value.

Purchase Price Breakdown
Building 78%$249,600
Land 22%$70,400
Building Value Reallocation (with Cost Seg)
5-Year Property18%
$44,928
15-Year Property12%
$29,952
27.5 / 39-Year (Remaining)70%
$174,720

5 & 15-year components ($74,880 = 30% of building) are eligible for bonus depreciation in Year 1.

Overline Study Cost & ROI
Overline Study Cost
$499 - $2,000
Avg. ROI
10-40x

The math: A $320,000 property with 78% building value and 30% reclassification yields ~$27,706 in Year 1 federal tax savings at the 37% bracket — significantly more ROI than traditional studies costing $5,000-$10,000+.

Housing Stock Advantage

With a median build year of 1998, Houston's housing stock has identifiable components (HVAC, electrical, plumbing, landscaping) that are strong candidates for accelerated depreciation.

N/A — No State Income Tax
Texas Bonus Depreciation Conformity

Because Texas has no state income tax, there is no state-level depreciation deduction or conformity issue. Federal bonus depreciation under Section 168(k) applies in full and there is no state tax return to worry about.

What This Means for Houston Investors: Texas is one of the most favorable states for cost segregation. Your entire tax benefit comes from federal savings, with zero state-level complications. No addback, no phase-out, no conformity issues — just clean, immediate federal deductions.

Federal vs. TX Depreciation Timeline
PeriodFederal TreatmentTX State Treatment
Year 1100% bonus depreciationN/A — No state income tax
Years 2+Standard MACRS schedulesN/A — No state income tax
Section 179 Expensing
State ConformityLimited

No state income tax means Section 179 operates at the federal level only in Texas. With no state tax to offset, TX investors maximize their retained cash flow — the trade-off is higher property taxes that make cost seg studies even more critical for net returns.

Key Takeaway

A $350K property with a $262,500 depreciable basis and 30% cost seg reclassification yields ~$29,138 in federal tax savings in Year 1. Because Texas has no state income tax, your total Year 1 savings = $29,138 with zero state tax friction.

Bottom Line

Texas is the simplest state for cost segregation planning. No state income tax = no state depreciation deductions = no conformity issues. Your entire savings are federal, and they are immediate and unreduced.

Local Property Tax
1.60%
Houston effective rate
Transfer Tax
None — Texas has no transfer tax or documentary stamps
State Income Tax
0%
None
Property Tax Details

Harris County effective rate of ~1.60%. Homestead exemption available for primary residences. Investment properties pay the full rate. MUD taxes can add 0.5-1.0% in newer suburban developments.

Assessment Methodology
MethodMarket value (100% of appraised value)
Reassessment CycleAnnually
Assessment BodyCounty Appraisal District (CAD)
Appeal WindowMay 15 or 30 days after notice (whichever is later)
Appeal Success Likelihood
Very High
LowModerateGoodVery High

Texas has the most active property tax appeal market in the U.S. — over 50% of protests in major counties result in reductions. With no state income tax, property taxes are the primary revenue source, leading to aggressive valuations. ARB (Appraisal Review Board) hearings are free and informal. Binding arbitration and district court are available for larger properties.

Work with Overline — Our team helps Houston investors identify over-assessed properties and file tax appeals. A successful appeal can save thousands annually and compounds your cost seg savings.

Illustrative Example

Cost Seg Example for Houston, TX

This example assumes a purchase eligible for 100% bonus depreciation. All factors below are based on averages from our historical cost segregation studies for TX properties. To see your exact savings, run a property-specific cost seg analysis below.

Typical Houston, TX Property Details
$
50%95%
5%35%
2%25%
Total Reclassified30% of building
10%37%
Estimated Year 1 Tax Savings
Building Value$249,600
$320,000 x 78%
Normal Annual Depreciation$9,076
$249,600 ÷ 27.5 yr (residential)
5-Year Reclassified$44,928
15-Year Reclassified$29,952
Total Accelerated$74,880
30% of $249,600 building value
Federal Tax Savings (Year 1)$27,706
$74,880 x 37% bracket
Total Year 1 Tax Savings$27,706
8.3x normal annual deduction captured in Year 1

TX State Tax: Texas is one of the most favorable states for cost segregation. Your entire tax benefit comes from federal savings, with zero state-level complications. No addback, no phase-out, no conformity issues — just clean, immediate federal deductions.

Insurance & Risk

Insurance Landscape in Houston

Insurance costs directly impact your cash flow. Understanding Houston's risk profile helps you budget accurately and avoid coverage gaps.

Avg. Annual Premium
$3,800
Houston average
State Average
$3,500
52% above average
National Average
$2,300
for comparison
Key Risk Drivers
1
Hurricanes and tropical storms
2
Severe flooding (Houston floods repeatedly)
3
Wind and hail damage
Coverage Recommendations
Wind/hail coverage with separate deductible (typically 1-2% of dwelling) — critical in North Texas
Flood insurance essential in Houston, coastal areas, and low-lying zones (separate NFIP or private policy)
Named storm deductible for Gulf Coast properties (2-5% of dwelling coverage)
Umbrella liability policy ($1M+) for rental properties given storm-related liability
Cost Seg + Insurance Connection

Texas's high insurance costs make accurate building valuation essential. A cost segregation study provides component-level documentation that supports precise replacement cost estimates — helping you avoid both over- and under-insurance while substantiating claims after storm damage.

Revenue Comparison

STR vs. Long-Term Rental in Houston

Compare short-term (Airbnb) and long-term rental income for a typical Houston investment property.

Long-Term Rental
Monthly Rent (3BR)$1,750
Annual Gross$21,000
Vacancy Rate5%
Net Annual$19,950
Tenant StabilityMedical professionals and energy sector workers provide stable, high-quality tenancies averaging 18-24 months
Depreciation Schedule27.5 years
Residential rental property
Tax TreatmentPassive Only
Losses can only offset passive income unless you qualify as a Real Estate Professional (750+ hrs/yr)
Short-Term Rental
Avg. Nightly Rate$145
Occupancy Rate65%
Annual Gross Revenue$34,399
Net Annual (after expenses)$24,079
Management20-25% of gross
Depreciation Schedule39 years
Classified as commercial / transient use property
Tax TreatmentActive Income Eligible
Losses can offset W-2 / active income if you document 100+ hrs of material participation and meet IRS criteria
Cost Seg + STR Loophole

Houston's lack of zoning makes it one of the easiest markets to operate STRs while capturing cost seg benefits. Material participation in a furnished STR + cost seg yields $27.7K in Year 1 deductions against active income while the property cash flows.

Market Fundamentals

Economy & Housing Demand in Houston

Strong economic engines create stable rental demand. Here is what drives Houston's economy and housing market.

Median Income
$68,000
Rent-to-Income
26%
Healthy ratio
Vacancy Rate
5.2%
Pop. Growth
+1.5% annually
Major Employers
1
Texas Medical Center (106K+)
2
ExxonMobil (15K+)
3
Memorial Hermann (30K+)
4
Houston Methodist (28K+)
5
Shell USA (10K+)
6
NASA Johnson Space Center (10K+)
Top Industries
Energy & Oil/Gas
Healthcare
Aerospace
Petrochemicals
International Trade
Landlord & STR Rules
Landlord Friendliness
Very Friendly
Eviction Timeline
21-30 days
STR Regulation
Minimal — Houston has no zoning code

Houston is the only major U.S. city without a zoning code. STRs are permitted throughout the city with a hotel occupancy tax registration. HOA restrictions are the primary limitation on STR activity.

Why Invest Here

Houston is the #4 metro in the U.S. with a uniquely diversified economy. The Texas Medical Center alone (106K employees) generates more rental demand than most mid-sized cities. No zoning code, no state income tax, and entry prices under $320K make this one of the most investor-friendly large markets in America.

Where to Invest

Top Neighborhoods in Houston

#1
Katy / Cinco Ranch
Master-planned suburban communities with top schools and family appeal
Price
$350K
Rent
$1,900
Yield
6.5%
Katy ISD is one of the highest-rated school districts in Texas, driving fierce rental demand from relocating families. Newer construction (2000s+) yields strong cost seg results.
$350K$1,9006.5%
Katy ISD is one of the highest-rated school districts in Texas, driving fierce rental demand from relocating families. Newer construction (2000s+) yields strong cost seg results.
Katy ISD is one of the highest-rated school districts in Texas, driving fierce rental demand from relocating families. Newer construction (2000s+) yields strong cost seg results.
#2
Sugar Land / Missouri City
Affluent suburb with corporate employers and excellent infrastructure
Price
$380K
Rent
$2,050
Yield
6.5%
Schlumberger and other corporate campuses create captive tenant demand. Fort Bend County's strong schools attract families willing to pay premium rents. Newer subdivisions offer 80%+ building-to-value ratios ideal for cost seg.
$380K$2,0506.5%
Schlumberger and other corporate campuses create captive tenant demand. Fort Bend County's strong schools attract families willing to pay premium rents. Newer subdivisions offer 80%+ building-to-value ratios ideal for cost seg.
Schlumberger and other corporate campuses create captive tenant demand. Fort Bend County's strong schools attract families willing to pay premium rents. Newer subdivisions offer 80%+ building-to-value ratios ideal for cost seg.
#3
The Heights / Montrose
Trendy urban neighborhoods with walkable dining, bars, and historic bungalows
Price
$475K
Rent
$2,200
Yield
5.6%
Houston's most desirable inner-city neighborhoods command premium rents from young professionals. Older bungalows (1920s-1960s) with renovations can yield above-average cost seg reclassification rates.
$475K$2,2005.6%
Houston's most desirable inner-city neighborhoods command premium rents from young professionals. Older bungalows (1920s-1960s) with renovations can yield above-average cost seg reclassification rates.
Houston's most desirable inner-city neighborhoods command premium rents from young professionals. Older bungalows (1920s-1960s) with renovations can yield above-average cost seg reclassification rates.
#4
Pearland / League City
Fast-growing suburbs between Houston and Galveston with NASA proximity
Price
$310K
Rent
$1,750
Yield
6.8%
Proximity to NASA Johnson Space Center and the Texas Medical Center corridor creates dual-sector tenant demand. Affordable entry prices with strong cash flow.
$310K$1,7506.8%
Proximity to NASA Johnson Space Center and the Texas Medical Center corridor creates dual-sector tenant demand. Affordable entry prices with strong cash flow.
Proximity to NASA Johnson Space Center and the Texas Medical Center corridor creates dual-sector tenant demand. Affordable entry prices with strong cash flow.
#5
Spring / The Woodlands
Upscale master-planned community with ExxonMobil campus and retail hub
Price
$420K
Rent
$2,300
Yield
6.6%
ExxonMobil's 10,000-employee campus and Hewlett Packard Enterprise HQ anchor The Woodlands. Premium rents from energy executives and corporate professionals.
$420K$2,3006.6%
ExxonMobil's 10,000-employee campus and Hewlett Packard Enterprise HQ anchor The Woodlands. Premium rents from energy executives and corporate professionals.
ExxonMobil's 10,000-employee campus and Hewlett Packard Enterprise HQ anchor The Woodlands. Premium rents from energy executives and corporate professionals.
Local Partners

Investor-Friendly Partners in Houston, TX

We are building a curated directory of top investor-friendly brokers, property management companies, and service providers in Houston, TX.

Investor-Friendly Brokers

Top real estate agents who specialize in investment properties and understand cost segregation, 1031 exchanges, and cash-flow analysis.

Coming Soon
Property Management

Vetted property managers who handle tenant screening, maintenance, and rent collection for both long-term and short-term rentals.

Coming Soon
Insurance Agents

Independent insurance agents who specialize in rental property coverage and can leverage cost seg data for accurate replacement cost estimates.

Coming Soon

Are you a broker, property manager, or insurance agent serving investors in Houston, TX?

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Frequently Asked Questions

Cost Segregation FAQ — Houston, TX

How much can I save with cost segregation in Houston, TX?

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On a typical $320K property in Houston, cost segregation can yield approximately $27,706 in Year 1 combined federal and state tax savings at the 37% bracket, with a study ROI of 616%. Overline studies cost $499-$2,000.

What is the property tax rate in Houston?

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The effective property tax rate in Houston is approximately 1.60%. Harris County effective rate of ~1.60%. Homestead exemption available for primary residences. Investment properties pay the full rate. MUD taxes can add 0.5-1.0% in newer suburban developments.

Is Houston a good market for real estate investing?

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Houston is the #4 metro in the U.S. with a uniquely diversified economy. The Texas Medical Center alone (106K employees) generates more rental demand than most mid-sized cities. No zoning code, no state income tax, and entry prices under $320K make this one of the most investor-friendly large markets in America.

What is the average insurance cost for rental properties in Houston?

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The average annual homeowner insurance premium in Houston is approximately $3,800. Houston's Gulf Coast location and flood risk drive insurance premiums well above the national average. Flood insurance is essential and adds $1,000-2,500/year beyond standard policies. Factor $4,500-6,000/year total insurance cost into projections.

What are the STR and landlord rules in Houston?

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Houston is rated "Very Friendly" for landlords. STR regulation: Minimal — Houston has no zoning code. Eviction timeline: 21-30 days. Houston is the only major U.S. city without a zoning code. STRs are permitted throughout the city with a hotel occupancy tax registration. HOA restrictions are the primary limitation on STR activity.

Who are the major employers in Houston?

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Major employers in Houston include Texas Medical Center (106K+), ExxonMobil (15K+), Memorial Hermann (30K+), Houston Methodist (28K+), Shell USA (10K+). Top industries: Energy & Oil/Gas, Healthcare, Aerospace, Petrochemicals, International Trade.

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